Strategy (MSTR) Is an Appealing Investment for Equity Investors Looking for Leveraged Bitcoin (BTC) Exposure, Investment Bank KBW Says

The company formerly known as MicroStrategy is an appealing investment for equity investors looking for levered bitcoin (BTC) exposure

Technology company Strategy (NASDAQ:MSTR) stock rose on Thursday after an initiation note from KBW.

KBW assumed coverage of Strategy with an outperform rating and a $560 price target. The shares were 1% higher at around $329 in early trading.

Once Strategy, the company co-founded by Michael Saylor, adopts the Financial Accounting Standards Board (FASB) updated accounting treatment for bitcoin holdings in the first quarter of this year, it will shift from an "outdated measurement approach to fair value accounting, with unrealized gains/losses flowing to net income," analyst Bill Papanastasiou wrote in a note to clients.

The company reported an impairment loss of $1 billion for the fourth quarter of 2024 because it did not adopt new FASB rules.

One of the most important criteria for joining the S&P 500 index is positive net earnings in the last quarter and the sum of the previous four quarters, the report said.

"We believe that the bitcoin fair value adjustment to net income will be a key driver of the company meeting this requirement and ultimately joining the S&P 500 index later this year," Papanastasiou added.

"We expect bitcoin to continue to appreciate in value over the long term, driven by sound monetary policy, increasing adoption and demand for the digital asset."

KBW said that Strategy has the "largest bitcoin treasury held by a public operating company," and the company has a number of tools it could use to expand its BTC stack.

In the longer term, there is also the opportunity for Strategy to generate yield on-chain from applications built on the Bitcoin network, the bank said.

The development of applications on top of the Bitcoin network could result in a massive value unlock, as it is the most secure, decentralized and valuable public blockchain, the report added.

"We believe that applications built on Bitcoin will be highly valuable, given the network effects and developer community, and will drive significant demand for BTC," Papanastasiou said.

"As applications on Bitcoin generate revenue and cash flows, we expect a portion of these revenues to flow back to bitcoin holders via buybacks, dividends or other capital return programs."

KBW also initiated coverage of Digital Currency Group (NYSE:DCG) with a market perform rating and a $160 price target. The shares were up 1% at around $122 in early trading.

The investment bank also assumed coverage of Coinbase (NASDAQ:COIN) with a market perform rating and a $70 price target. The shares were 0.5% lower at around $63 in early trading.